Forex

Indonesia's inflation accelerated more than estimated to a 22-month high in July, stoking speculation the central bank will increase interest rates.

Consumer prices jumped 11.9 percent from a year earlier, after rising 11.03 percent in the previous month, the Central Statistics Bureau said in Jakarta today. Economists were expecting an 11.15 percent gain. The agency switched to using 2007 as the base year for its calculations in June.

Stocks fell to their lowest in about two weeks on concern accelerating inflation will prompt the central bank to increase its policy rate at a faster rate, a move than may slow earnings growth. Governor Boediono, who today said he would use ``all instruments'' to tame prices, may raise Bank Indonesia's benchmark rate next week for a fourth straight month.

``The tightening cycle could last a little longer than expected,'' said Lim Su Sian, an economist with DBS Group Holdings Ltd. in Singapore. Before today's data Lim had forecast the central bank to raise rates twice this year.

The benchmark stock index fell 2.5 percent to 2,247 at 3:24 p.m. in Jakarta. The rupiah gained 0.04 percent to 9,092 against the dollar.

Indonesia's state oil company PT Pertamina raised the price of liquefied petroleum gas sold in 12-kilogram (26-pound) cylinders to households by 24 percent on July 1, the first increase since December 2004. That prompted the central bank to dump its forecast of slowing price gains last month.

`Remain High'

Consumer prices also increased in July as prices of chicken, eggs and chilies rose. Food costs were up 20 percent last month after gaining 19.2 percent in June, the statistics agency said.

``Inflation will remain high this year and in the coming months,'' PT Bank Mandiri President Director Agus Martowardojo said. Bank Mandiri will have to raise its lending rate to maintain its net interest margin of 5 percent, he said.

Consumer prices rose 1.37 percent in July from a month earlier, according to today's report. The statistics agency didn't release core inflation data.

``We will use all instruments to fight inflation, including the policy rate, open-market operations and if necessary the reserve requirement for commercial banks,'' Boediono said today before the statistics agency released the data.

`Aggressive Hikes'

Bank Indonesia forecasts inflation at between 6.5 percent and 7.5 percent next year, he said.

``Unlike the central bank we don't think that inflation will fall to single digit next year,'' Prakriti Sofat, an economist at HSBC Holdings Plc in Singapore, said in a note to investors. ``We would prefer more aggressive hikes.''

Bank Indonesia has raised its benchmark rate by three quarters of a percentage point to 8.75 percent since May. The central bank next meets in Jakarta on August 5.

``We will anchor the inflation expectation,'' the central bank's Senior Deputy Governor Miranda Goeltom told reporters in Bali today. ``We want to bring inflation down to the level that we want in 2009.''

Indonesia's exports in June rose 35 percent to $12.9 billion, while imports outside trade zones were $9.83 billion, the statistics agency said today.